Owning a business


Negotiating your small business sale: What you need instead of a due diligence checklist

Fahad Salman

Fahad Salman

April 5, 2024 ⋅ 7 min read

Share the love

Share on TwitterShare on FacebookShare on Linkedin

Congratulations are in order: You’re one giant step closer to selling your small business! Out of multiple — maybe even dozens — of potential buyers, you’ve accepted a letter of intent (LOI) from one lucky potential successor. And because you’re the kind of person who looks before you leap (same here), you want to know what the next stage — due diligence and negotiation — is all about.

At Baton, we’re all about humanity and transparency at every stage of a small business acquisition. We have a list with some examples for you, but we’ll deliver it with the same unvarnished truth we’d appreciate in your shoes.

First up: What is due diligence in the acquisition process?

If you’ve ever sold a house or another major asset, you have a general sense of what due diligence is. Instead of asking probing real estate questions like: When was the last time you had your HVAC serviced or Why can’t I run the sink, disposal, and dishwasher at the same time? your business buyer might ask questions ranging from Can I see two more years of payroll? (hard due diligence) to Can you talk me through your current managers’ strengths and weaknesses? (soft due diligence).

But the reason a standard checklist won’t do the trick here is this that:

Due diligence and negotiation look different for everyone (and that's OK)

My team and I have collectively helped hundreds of small business owners and buyers negotiate their small business sales. You could say “we’ve seen it all” but since every small business sale looks different, it would be more accurate to say that we’ve seen a lot of recurring themes, hit plenty of snags, and emerged on the other side with successful sales. We employ those lessons learned every day.

Some buyers will do the minimum checks just to make sure nothing’s wildly off. Others will hire a third party whose sole function is to dredge sun up to sundown.

How long does due diligence last?

Because every buyer tackles due diligence and negotiations with different goals and requirements, there’s no set time frame here. It can take anywhere from a few weeks to a few months depending on how complex the deal is and how the buyer plans on financing it. For example, if a buyer is seeking SBA financing, it typically takes banks about 60 days to underwrite the loan.

What are the steps that come before and after?

  1. Negotiation (at any point in the process;

    only in some cases)

  2. Financing pre-qualification

  3. Due diligence

  4. Financing

  5. Signing of the purchase agreement

  6. Completion of closing conditions, which could include:
    Final inventory count and final walkthrough
    Assignment of existing contracts (for asset sales)
    Regulatory approvals

  7. Closing (champagne chilled and ready!)

Due diligence in SMB acquisitions is about mitigating risk (searching for skeletons)

The common goal small business sellers and buyers have going into the due diligence stage is confirmation that we’re selling or buying the business we think we’re selling or buying. That’s the risk part. The reason buyers are searching for the proverbial skeletons in your closet is not that they’re vindictive or even that they’re looking for an excuse to knock down your asking price (they may or may not); it’s because their fate is in your hands. Will your buyer be able hit the ground running and capitalize on your success or will they make a painful discovery during the transition that gives them buyer’s remorse? Both you and your buyer have a lot on the line. A little empathy will go a long way.

Due diligence is not a sprint but a marathon. Mindset beats checklist.

The requests will come and you’ll take them in turn as a team. One of the most important things I can convey to you about this stage of the sale is that 9 times out of 10 it is going to be highly charged. It may feel at times like you’re on an emotional roller coaster, so if you can buckle up and keep your seatbelt on throughout the process, the ups and down will be a little more tolerable.

Why due diligence and negotiation is such an emotional time

You’ve been on quite a ride already in deciding to sell your business. Taking the steps to find professional help, put your nest egg on the market, and manage buyer interest was a feat. Now you’ve taken your business off the market where it was a hot item and have to put all of your faith into one buyer to deliver you both to the finish line. In reality, you are all on the same team and want the same things — even if it sometimes feels like the buy side is trying to topple your sandcastle.

What happens if you discover issues or discrepancies during due diligence?

There’s an old M&A expression: "A deal dies 3 times before it gets done.” But sincerely, this is par for the course and not a reason to panic. The best advice is to trust your M&A Advisor to “quarterback” each “play.”

We have worked with many an SMB seller who attempted to list and sell their business without a broker and got a promising buyer on the line only to see the whole deal blow up during the due diligence or financing stage. This is what your advisor is here for: we provide the expertise and connections needed to navigate the bumps in the road and expedite the process whenever possible. We provide a significant buffer and can save you months of effort and heartache.

What specific documents and information should be reviewed during due diligence?

Again, what your buyer’s team needs is unique to them, and a lot will depend on how much hard and soft due diligence material you’ve shared up until now. At Baton, we offer a robust Data Room where sellers can offer up bonus materials. If you’ve done this, you and your buyer may have a head start in the due diligence process. If not, this will be the time to get those ready.

That all said, below is a very general list of due diligence documents your buyer may ask for and actions they might take:

  1. Background check on you

  2. Request for full financials (if you haven’t made them available already)

  3. Any relevant licenses, permits, and zoning information they need to know about

  4. Your full employee list and payroll

  5. Any leases (if applicable)

  6. Professional real estate inspection (if applicable)

  7. Equity structure and governance (if applicable)

  8. Insurance policies

  9. Inventory list, accounts payable, and accounts receivable including aged schedules

  10. Details of any litigation or threatened claims (customer or employee-based)

  11. Loan forgiveness proof

  12. A list of all debts and loan agreements

What if the buyer tries to negotiate down from your asking price?

Many buyers feel bullish about a business, can’t wait to get to work, and will sign a purchase agreement at your asking price. Others may turn up something in due diligence that wasn’t on your radar and that supports their case for a counteroffer.

If you feel that accepting the counteroffer still lands you at a fair price and allows you to have some peace, that could be the best option for you. If you feel the buyer is nickel-and-diming or that you’re simply unwilling to part with your business for less, countering their counter-offer might be your move.

Heads up: If you enter negotiations, that part of the process can take a couple of weeks to a month.

It’s true that brokers and advisors have a stake in the sale of your business too. A good business broker or M&A advisor will present all the facts and help you think through your options. They’ll never lead or pressure you to make a decision that doesn’t feel right.


You’ve entered an exciting phase and should feel proud of what it took to get here. And though in many ways you’re on the last leg of your business selling journey, this leg is a ping-pong match of information that comes with many emotional highs and lows. Have faith in and open lines of communication with your M&A Advisor. They’ll be your quarterback and buffer through any turbulence. And try to keep in mind in those turbulent times that both your team and your buyer’s want to get to a successful closing. You’ve got this.

Looking ahead to Due Diligence and deciding how you'd like to approach your sale?
Learn more about my team and selling your business with Baton.